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Income Support: Social security transfer payments

Income Support: Social security transfer payments

The proportion of the population aged 16 years and over dependent on the main direct government pensions and benefits has almost doubled over the past two decades.

The Federal government takes a major role in redistributing resources within the Australian community, generally from high to low income households. It does so by collecting revenue through direct and indirect taxes and redistributing it in the form of services (such as education and health) or direct income support (such as pensions, benefits and allowances). This review describes the characteristics of people who receive income from the four main direct government sources; the age pension, the unemployment benefit, the disability support pension, and the sole parent pension. Over the past two decades the proportion of people aged 16 years and over who were dependent on the main direct government benefits has almost doubled, from 12% to 23%. The major contributor to this rise has been the increase in the number of people receiving unemployment benefit.

Australia's welfare systemThe development of Australia's welfare system has been sporadic. After the introduction of the age pension in 1909, the invalid pension in 1910, and maternity allowances in 1912, there were no new social security initiatives until the 1940s when the unemployment benefit and widow's pension were introduced. The next period of activity took place in the early 1970s amid a growing recognition of poverty and a greater interest in social justice and policies to reduce inequality. The focus of this activity was not only increased expenditure on social security, but also increased expenditure on social programs such as health and education1.

A changing societyThe rise in the level of social security transfer payments over the past 20 years is directly related to changes in demographic, economic and social conditions. Recurrent periods of recession have a direct effect on the number of people claiming unemployment benefits. There has also been a change in patterns and expectations of work as more women have entered the labour force and more jobs have become part-time (see Trends in part-time work). Demographic changes such as reduced fertility and increased life expectancy are producing an ageing society which impacts on age pension expenditure (see Projections of the aged population). Increased levels of separation and divorce have led to more one parent families.

PEOPLE RECEIVING SELECTED SOCIAL SECURITY TRANSFER PAYMENTS

Total people

Age pension

Unemployment benefit

Disability pension

Sole parent pension

As % of population aged 16 years and over

Year

no.

no.

no.

no.

no.

%

1973

931,812

37,317

149,609

57,872

1,176,610

12.5

1975

1,097,225

157,948

168,784

102,533

1,526,490

15.5

1977

1,205,347

243,884

202,963

127,013

1,779,207

17.5

1979

1,292,476

312,924

219,843

151,181

1,976,424

18.8

1981

1,347,430

313,200

221,951

194,468

2,077,049

19.0

1983

1,390,838

633,281

220,289

224,489

2,468,897

21.7

1985

1,331,782

562,266

259,162

246,295

2,399,505

20.3

1987

1,322,174

553,653

289,050

248,907

2,413,784

19.6

1989

1,334,310

389,794

307,795

239,469

2,271,368

17.7

1991

1,375,849

676,705

334,234

265,720

2,652,508

20.0

1993

1,515,682

913,770

406,572

298,444

3,134,468

23.1

Source: Department of Social Security Annual Report and Ten Year Statistical Summary; Estimated Resident Population

Age pensionThe Invalid and Old-age Pensions Act 1908 provided for an age pension for men and women aged 65 years or over. The Act included a provision for reducing the qualifying age for women to 60 years when finances permitted. This provision was enacted in 1910. The age of 65 years had been used in previous State schemes and also recommended by the Royal Commission on Old-age Pensions which was held prior to the introduction of the Act. Although at the time no reason was presented for the five-year difference between men and women, Kewley1 suggests that it was related to the difference between the ages of husbands and wives. In the 1993-94 Federal Budget the government proposed that the age at which a woman can qualify for an age pension be increased from 60 years of age to 65 years. This proposal, if introduced, will be implemented progressively, commencing in 1995, by increasing the qualifying age by a quarter of a year per year over a period of 20 years.

The age pension has always been non-contributory but is means and assets tested. Changes to means and assets tests in the last 20 years have led to a decrease in the proportion of the aged receiving the age pension. In June 1993, 481,000 men and 1,035,000 women were receiving the age pension. This gender imbalance is due to the lower qualifying age and the longer life expectancy of women in comparison to men. The greater longevity of women is reflected in the type of benefit pensioners received; 67% of male age pensioners received a married rate pension compared to 35% of female age pensioners.

In 1973, the proportions of aged people who received the age pension were 59% of men and 68% of women. These proportions increased to 75% and 79% respectively in 1978. This increase was due primarily to the progressive reduction (to 70 years) in the age at which means testing no longer applied. Means testing of people under 70 years was replaced in 1976 with income testing. Between 1978 and 1990, the proportions of the aged who qualified for the age pension decreased to 50% of men and 64% of women. This decline was due to the introduction of income testing for people aged 70 years and over in 1983, and the introduction of assets testing in 1985. However, since 1990, the proportions have started to rise again.

PENSION RATE OF AGE PENSIONERS, 1993

Males

Females

Pension rate

no.

no.

Standard rate

156,745

679,919

Married rate

324,451

357,567

Total

481,196

1,034,486

Source: Department of Social Security Annual Report

AGE PENSIONERS, 1993

Source: Department of Social Security

AGE PENSIONERS AS A PROPORTION OF AGED PEOPLE(a)

(a) Males aged 65 years and over and females aged 60 years and over.

Source: Department of Social Security Annual Report; Estimated Resident Population

Unemployment benefitThe Commonwealth unemployment benefit scheme was introduced in 1945 and replaced ad-hoc relief provided by State governments and charities. It was introduced at the start of the period of post-war reconstruction when full employment was both the ideal and the reality2. Between 1946 and 1951, the number of people receiving the unemployment benefit averaged less than 3,000.

The eligibility criteria for the unemployment benefit have changed over time. In 1988 the Job Search Allowance (JSA) replaced the unemployment benefit for 16-17 year olds. This allowance is paid at the same rate as educational allowances and therefore created a neutral system of allowances.

Currently the JSA covers 16-17 year olds and older people during their first year of unemployment. For people aged over 18 years who have been unemployed for 1 year or longer the Newstart Allowance (NSA) is payable. This incorporates agreements on appropriate job search, employment and/or training activities. In the following discussion, these two allowances are combined under the general heading of unemployment benefits.

Since the early 1970s, periods of recession have considerably increased the number of people receiving the unemployment benefit. In 1973, 37,000 people (0.5% of the working age population) received the unemployment benefit. In June 1993, 914,000 (8% of the working age population) received the benefit.

Comparing the age distributions of people receiving the unemployment benefit in 1973 and 1993 shows that there has been a shift away from youth towards older age groups. The recession in the early 1970s, the first serious recession since the great depression, particularly affected employment opportunities for younger people (under 21 years), and they formed the majority of people who received the unemployment benefit in 1973. By the 1990s, further recessions had affected a wider range of age groups and, along with increasing duration of unemployment, a greater proportion of those receiving unemployment benefits were aged 21-44 years. Another factor in the reduction in the share of those under 21 years is the increased education participation of this age group both at secondary and tertiary level (see Education - National summary tables).
The proportion of people in receipt of the unemployment benefit for longer than 6 months has increased over the past two decades. In 1973, 18% of unemployment benefit recipients had been receiving the benefit for 6 months or longer. In 1993 the figure was 57%. For a more detailed review of duration of unemployment see Long-term unemployment.

PEOPLE RECEIVING UNEMPLOYMENT BENEFIT AS A PROPORTION OF THE WORKING AGE POPULATION(a)

(a) Males aged 16-64 years and females aged 16-59 years.
Source: Department of Social Security Annual Report; Estimated Resident Population

Disability support pension
The disability support pension is the main means of income support for people who have disabilities that preclude them from supporting themselves by paid employment. This pension was previously known as the invalid pension and was introduced in 1910 as a result of the Invalid and Old-age Pensions Act 1908. The pension provides income support for people aged 16 years and over who are permanently incapacitated for work. It is paid at the same rate as the age pension and is currently means and assets tested3.
The qualification of permanent incapacity for work was originally taken to mean totally and permanently incapacitated for work but this was amended in the 1940s to stipulate that claimants must be permanently incapacitated for work to the extent of 85%3.
The Disability Reform Package, announced in the 1990-91 Federal Budget, emphasised active measures designed to assist people with disabilities into employment rather than place them on long-term income support. The invalid pension was renamed, becoming the disability support pension and eligibility criteria were changed. The concept of 85% permanent incapacity for work was replaced by an inability to work for at least 30 hours a week at full award wages for at least the next two years due to physical, intellectual or psychiatric impairment, and a minimum impairment threshold of 20% was introduced4.
In June 1993 there were 292,000 men (5% of working age men) and 115,000 women (2% of working age women) receiving a disability support pension. The corresponding figures for 1973 were 85,000 and 64,000 respectively. These increases represent an annual average growth rate over the period of 6% for men and 3% for women. However, during this 20 year period, the number of women receiving a disability support pension remained relatively stable until the mid-1980s while the number of men receiving the pension increased at a fairly constant rate except during the early 1980s when a change in administrative guidelines temporarily halted the increase in numbers3.
The majority of men (62%) in receipt of the disability support pension in 1993 were aged 50 years or over and thus approaching retirement age. Women in receipt of the disability support pension had a similar pattern with numbers increasing with age. However, the proportion aged 50 years and over (39%) is not comparable with that for men because disabled pensioners generally move on to the age pension at 60 years for women and 65 years for men.
The considerable difference between the numbers of men and women receiving a disability support pension may be partly due to the alternative benefits a woman with a disability may be entitled to claim (e.g. widow pension, wife pension and an earlier age pension). Other factors contributing to the increasing numbers of people receiving a disability support pension are the greater social acceptability of receiving government support combined with an increasingly competitive labour market3. In times of high unemployment, the eligibility criteria relating to the inability to work for the next two years are more likely to be met.

DISABILITY PENSIONERS, 1993

Source: Department of Social Security Annual Report

DISABILITY PENSIONERS AS A PROPORTION OF THE WORKING AGE POPULATION(a)

(a) Males aged 16-64 years and females aged 16-59 years.
Source: Department of Social Security Annual Report; Estimated Resident Population

Sole parent pension
Income support arrangements associated with the sole parent pension have changed considerably since their first introduction, reflecting changing perceptions of women's and men's roles, and changing patterns of work and marriage. Initially income support was targeted at widows (although this was broadly defined and in some circumstances included desertion and divorce) on the basis that a mother's first priority should be care of her children rather than undertaking paid work. Commonwealth pensions for widows were introduced in 1942, although war widow's pensions had been introduced in 1914. In 1973, the supporting mother's benefit was introduced, and in 1977, was replaced by the supporting parent's benefit when coverage was extended to supporting fathers. In 1989, the class A widow pension and the supporting parent benefit were amalgamated into the sole parent pension5.
The philosophy underlying the current sole parent pension is to provide lone mothers and fathers with adequate income for themselves and their children under 16 years of age, if they wish to stay at home with them. However, schemes like JET (Jobs, Education and Training) encourage and help lone parents to obtain paid employment and thus to improve their incomes. This is assisted by the provision of child care fee relief for attendance at child care centres that receive a Commonwealth government subsidy.
The philosophy underlying the current sole parent pension is to provide lone mothers and fathers with adequate income for themselves and their children under 16 years of age, if they wish to stay at home with them. However, schemes like JET (Jobs, Education and Training) encourage and help lone parents to obtain paid employment and thus to improve their incomes. This is assisted by the provision of child care fee relief for attendance at child care centres that receive a Commonwealth government subsidy.
In June 1993, there were 281,000 mothers and 17,500 fathers receiving the sole parent pension. The number of lone parents receiving the pension has increased at an annual average rate of 9% since 1973, with women accounting for most of the increase.
The growth in the number of lone parents receiving the sole parent pension mirrors the growth in the total number of lone parents (see Changes in living arrangementsand Lone fathers with dependent children).
Fundamental changes in family formation and dissolution occurred in the period 1973-93. Most of these changes contributed to the increasing number of lone parents in our society. The Family Law Act 1976 legislated for no-fault divorce thus making divorce easier and at the same time removing some of its stigma. In 1993, almost three- quarters of sole parent pensioners are separated from either a registered married or de facto partner. A further 18% had never married.
The majority of sole parent pensioners are in their 20s or 30s. In 1993, 3% were aged less than 20 years and 2% were aged over 50 years. Because of their more limited financial resources, one parent families are more likely than other families to live in rented housing, particularly public housing (see Public tenants).

MARITAL STATUS OF SOLE PARENT PENSIONERS, 1993

Males

Females

no.

no.

Unmarried

806

53,709

Widowed

953

8,269

Divorced

1,127

15,236

Separated

13,534

182,836

Separated de facto

1,109

20,865

Total

17,529

280,915

Source: Department of Social Security Annual Report

SOLE PARENT PENSIONERS

Source: Department of Social Security Annual Report and Ten Year Statistical Summary

SOLE PARENT PENSIONERS, 1993

Source: Department of Social Security Annual Report

Relative income
Changes in the rates at which government pensions and benefits have been paid have generally been linked to changes in the cost of living as measured by the consumer price index. Depending on government policy the indexation has either been automatic or a special budget item. Other ad-hoc increases have been made from time-to-time to bring about desired increases over and above those related to the cost of living. The age and disability support pensions have always been paid at the same rate but the married unemployment benefit rate was not made equivalent to the married age pension rate until 1973. At the same time the widow pension was set to the same rate as the age pension, and the supporting mother's benefit (now the sole parent pension), also paid at the same rate, was introduced1.
Throughout the 1950s and early 1960s the age pension maintained value relative to the cost of living at about 22% of average weekly male earnings (AWME). However, by 1970, wages growth had caused the value to decline to 18% of AWME. In 1973, the government announced its intention of increasing the basic pension rate by gradual increments until it reached 25% of AWME1. By 1976 the standard age pension rate had reached 23% of AWME. From 1977 to 1989, the pension value was maintained at 23-24% of AWME. In 1990 the current target figure of 25% of AWME was reached and has been maintained since.
In 1973, the government removed the age related differences in unemployment benefit rates, making the single (no dependants) rate of unemployment benefit the same as the rate of the standard age pension. However, later changes to unemployment benefit rates again differentiated on the basis of age. In 1978-79 the government removed the automatic indexing of unemployment benefits for single people without dependants, reverting to an annual budgetary review. From then until 1983, the value of the single independent unemployment benefit declined relative to AWME, from 24% to 18%. Although the rate increased from 1983 to 21% of AWME in 1986, the single independent unemployment rate and the standard age pension rate have maintained a gap of 2-3 percentage points of AWME in favour of the age pension.

SELECTED BENEFITS AND PENSIONS AS A PROPORTION OF MALE ORDINARY TIME AVERAGE WEEKLY EARNINGS(a)

(a) Based on original quarterly average weekly earnings data.
(b) Standard rate
(c) Single independent rate (aged 21 years and over)
Source: Department of Social Security Annual Reports; Survey of Average Weekly Earnings

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